ABERDEEN, S.D. -- Jim Thorpe of Thorpe Real Estate and Auction in Aberdeen knew agricultural land values were rising, but it really hit home last year when a 64-acre tract of land sold near Bath for $6,500 an acre.
Although that tract was exceptional because of its high productivity, it is common for...
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Willmar Minnesota 2208 Trott Ave. SW / P.O. Box 839 56201

2012-11-30 12:15:51

ABERDEEN, S.D. -- Jim Thorpe of Thorpe Real Estate and Auction in Aberdeen knew agricultural land values were rising, but it really hit home last year when a 64-acre tract of land sold near Bath for $6,500 an acre.

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Although that tract was exceptional because of its high productivity, it is common for good crop land between Aberdeen and Groton in northeast South Dakota to sell for $5,500 to $6,000, he said.

"The rise in prices is really unprecedented," said Thorpe who has been in the real estate and auction business for 30 years. "Six-thousand-dollar-acre farm land -- who would have thought it?"

The dramatic rise in agricultural land prices is outlined in a study released recently by South Dakota State University.

"Agricultural land values continue to boom for all land uses and in most regions of South Dakota," said the authors of the study, SDSU professors Burton Pflueger and Larry Janssen. "The most recent increase of 26.8 percent for all agricultural land in South Dakota is the highest annual rate of increase in the past 22 years of this survey."

The climb in land values is primarily due to high prices for commodities such as corn and soybeans and low interest rates, which make borrowing money more attractive, said the authors. Excellent crop yields the past two years have also fueled the spike in land values, they said.

Price depends on the quality of the land. High-productivity land in Brown and Spink counties sold for an average of $5,119, while low-productivity land in those counties sold for $2,481, according to the survey.

Whether the land is good black dirt or marginal pasture land, one thing is for sure: Prices are going up.

In the north-central region, which includes Brown, Spink, McPherson, Edmunds, Faulk, Campbell, Walworth and Potter counties, agricultural land increased by 35 percent.

The biggest increases were reported in the western part of the region. Brown and Spink land values rose by 17 percent, while land values in Edmunds, Faulk and McPherson jumped 58 percent, according to the survey. While there were not enough land sales in Campbell, Potter and Walworth reported to calculate a statistically relevant average, those that were reported were much higher than the previous year, Pflueger said in a phone interview.

The land price increases in McPherson County seem to be true, said Susan Hoffman, McPherson County assessor.

"The selling prices have definitely gone up, especially in the eastern two-thirds of the county," she said. "Crop land is selling for $2,000 to $2,400 an acre."

Land in McPherson, Edmunds and Faulk counties sold for an average of $1,467 an acre last year, according to the survey.

"Some of our sales are definitely 50 percent higher than they would have been in the past," she said. "As long as the crop prices stay high, I think it will continue."

Marv Siebrecht, president of the Aberdeen Multiple Listing Board, real estate broker and state certified general appraiser, said agricultural land prices are going up, but are not as high as the survey suggests.

"In Brown County, I would say land has been going up 12 to 15 percent a year," he said. "There is not a lot of land for sale. The land that does come up is easy to sell. Everybody wants it. It is not like it was back in the 80s, when it was hard to find buyers because of high interest rates."

Pflueger said many factors can influence the results of the land value survey, including which parcels come up for sale. At other times, a particular region might have had strong or weaker sales the previous years and current sales might reflect a correction from those sales. Taken as a whole, and over multiple years, the survey does accurately identify trends, he said.

Right now, all data point to the biggest increases in land values since the survey began 22 years ago, he said.

Jeff Natalie-Lees writes for the American News in Aberdeen, S.D.

Thorpe also said that there is not a lot of land on the market now.

"Farmers are holding onto their land because the crop prices are high," he said. "It seems like there should be more nonoperator-owned land coming up for sale, but there isn't. As long as prices keep trending up, people tend to hold onto their investment. The first time it starts going down, that is when we might see more land put on the market."

Thorpe said the high prices are being interpreted by some as a bubble that could burst.

"I hope it doesn't, but farming is a risk," he said. "There are factors that could change the market. We could get a drought, interest rates could go up, or the government could change farm programs."

One of the biggest impacts of the land price run-up is on a farmer's net worth, he said.

"When you think about a quarter of land (160 acres) selling for $5,000 an acre, that is $800,000," he said. "There are farmers out there who own a lot of quarter sections."

The increase in land values is pushing up rental prices.

Cash rental rates increased 22.8 percent for cropland, 15.3 percent for hay land and 9.2 percent for pasture and rangeland, according to the SDSU survey.

The increase was the highest recorded in the 22-year history of the survey.

Average cash rental rates for crop land in the north-central region were $109.55 an acre, according to the survey. Rents were typically higher in Brown and Spink counties than they were in the western counties of the region.

Pflueger said many factors can influence the results of the land value survey, including which parcels of land come up for sale in a particular county or region. At other times, a particular region might have had strong or weaker sales the previous years and current sales might reflect a correction from those sales. Taken as a whole, and over multiple years, the survey does accurately identify trends, he said.

Right now, all the data points to biggest increases in land values since the survey began 22 years ago, he said.